Idaho real estate glossary

What is the 70% Rule in BRRRR Real Estate Investing?

The 70% rule is a widely used financial benchmark in real estate investing that helps buyers determine the Maximum Allowable Offer (MAO) for a distressed property. Under the formula, an investor should pay no more than 70% of the property's estimated After-Repair Value (ARV) minus projected renovation costs. In the context of the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat), adhering to the 70% threshold creates a 30% equity cushion that enables investors to pull out most or all of their capital during the cash-out refinance phase under standard lender Loan-to-Value (LTV) limits.

Updated with grounded research as of 2026-07-24.

The short answer

The 70% rule in BRRRR real estate investing is a deal-screening formula used to calculate the Maximum Allowable Offer (MAO) on a distressed property. It dictates that an investor's total acquisition cost should not exceed 70% of the property's projected After-Repair Value (ARV) minus estimated renovation expenses. The remaining 30% acts as a financial buffer to cover transaction fees, holding costs, interest, and the maximum equity requirements typical of institutional and private cash-out refinance lenders.

Key facts

70% Rule MAO Formula
Maximum Allowable Offer (MAO) = (After-Repair Value × 0.70) − Estimated Repair Costs
Role in BRRRR Strategy
Maintains a 30% equity cushion to absorb closing costs, carrying costs, and align with standard 75% LTV cash-out refinance caps.
Calculation Example
For a home with a $300,000 ARV requiring $45,000 in repairs: ($300,000 × 0.70) - $45,000 = $165,000 MAO.

Understanding the 70% Rule Formula and Mechanics

The 70% rule is designed to establish a strict pricing ceiling before making an offer on a target property [1.2.2]. By multiplying the projected After-Repair Value (ARV) by 0.70 and subtracting estimated renovation costs, real estate investors establish a Maximum Allowable Offer (MAO). The remaining 30% margin is not pure profit; rather, it is designed to absorb transaction costs, hard money interest, property taxes, insurance, and unforeseen cost overruns.

For example, if an investor evaluates a single-family property with a post-renovation market value of $300,000 that requires $45,000 in interior and exterior repairs, the calculation yields an MAO of $165,000 (($300,000 × 0.70) − $45,000). Offering more than this limit reduces the safety cushion and increases financial risk.

Applying the 70% Rule to the BRRRR Method

  • Buy: Purchasing distressed real estate significantly below market value using cash or short-term financing [1.1.2].
  • Rehab: Executing targeted capital improvements to boost forced equity and rental value.
  • Rent: Placing qualified long-term tenants to establish rental income.
  • Refinance: Converting short-term acquisition debt into a long-term fixed mortgage while extracting equity based on new ARV.
  • Repeat: Reinvesting extracted capital into subsequent acquisitions.

Common questions

What is the main difference between applying the 70% rule to flipping versus BRRRR?

Flippers apply the rule to guarantee resale profits after agent commissions and selling costs, whereas BRRRR investors use it to ensure enough equity is created to return capital during a 75% LTV cash-out refinance.

Can you use a higher percentage than 70% for BRRRR deals?

Yes. In competitive housing markets or low-rehab deals, investors sometimes adjust the rule to 75% or 80% of ARV, though this leaves less buffer for unexpected costs and may require leaving capital in the deal upon refinancing.

Does the 70% rule account for holding costs and closing fees?

Indirectly. The 30% difference between ARV and the offer/repair baseline is designed to cover closing fees, financing costs, holding expenses, and profit margin, but it does not replace a line-item budget.

Related Idaho questions

  • How do you accurately estimate After-Repair Value (ARV) for a BRRRR property?
  • What Loan-to-Value (LTV) limits do lenders typically enforce on cash-out refinances for investment properties?
  • How do holding costs impact your Maximum Allowable Offer on distressed real estate?

Sources and verification